Option ARM timebomb set to explode....

mbga9pgf

If you thought the mortgage market was in recovery, think again.....

http://www.totalsecuritization.com/Article.aspx?ArticleID=2032023

A wave of delinquencies is expected between 2009 and 2011 as more than $200 billion in option ARMs readjust, and for some lenders, most notably Countrywide Financial, the problems have already begun.
During a Wall Street Journal commissioned survey, UBS found that option ARM delinquencies are increasing at Countrywide, rising from 1.6 percent a year earlier to 5.7 percent as of June 30.
UBS also found more than 80 percent of the option ARM borrowers who are current are making only the minimum payment, which means their outstanding balance is growing larger and larger. Chances are many of these borrowers will end up in the precarious position of owing more on their home than it is actually worth.
Because so many of Countrywide's option ARMs--91 percent in 2006--were low documentation mortgages, there is no real way to tell whether or not borrowers will have the income necessary to afford readjusted payments.
Countrywide says they are not worried; potential losses on option ARMs are partially insured. There is no denying though that the company participated heavily in the option ARM market, and that a reckoning day can't be far away.
Countrywide first began offering option ARMs in 2003. By 2005, option ARMs accounted for $93 billion--19 percent of the company's loan volume according to trade publication Inside Mortgage Finance. The fact is notable because option ARMs accounted for $238 billion of loan volume that year for all lenders. Countrywide had more than 40 percent of the option ARM mortgage market.

http://efinancedirectory.com/articles/Option_ARMs_Create_Problems_for_Countrywide_and_BankUnited.html

Some Stats Guys....

$200 Billion Outstanding....

40% of all loans in 2007....

38% issued in 2007 had a 40 YEAR term...

$29 Billion recast in 2009.... But also consists of around 5 Billion in conservative older loans....

Ahead to 2010... $69 Billion to be recast, 37 BIllion of which were taken out in 2005 onwards... (BIG loans)

40 year loans are due for a payment shock increase of an average 102% increase in payments... That is between $1300 and $2200 PER MONTH

30 Year term Option arms are due to incur a payment shock of 58% increase on average....

Only 17% of option arm mortgages had proof of income...

link to analysis

Oh, resets are not due to peak until 2011.

50% of these loans are expected to default. I suggest this is optomistic at best, especially as 70% of homeowners with these loans are faced with over 100% increase in mortgage payments.

Green Shoots? Of Deadly Nightshade no doubt...

Generali

What rate do you think these loans are going to reset to typically?

mbga9pgf

Doesnt Matter. What matters is 80% are making interest only payments. This is a major misunderstanding about Option ARM. These mortages, once they hit either 110% or 125% of their original value, reset to full amortization, which in the case of 40 year term option ARM, equals over a 100% increase in mortgage payments. around 80% of these mortgage holders are making minimum payments.

Generali, sure you have done, but do your research on this one. Its going to be huge.

StevieJ

Yaaaaaaaaawwwwwwwwwwwnnnnnn.

matbe

you post this graph at least twice a week, just because you keep repeating something does not make it true or mean it will happen.

The phrase one trick pony springs to mind.

purch

What rate do you think these loans are going to reset to typically?

Don't try and complicate matters !!!! :rotfl:

P.S. It doesn't say that on those 'blogs'

Doesnt Matter

:rotfl::rotfl:

This is a major misunderstanding about Option ARM

Yes.......the Interest rate (apparantly) is irrellevant

mbga9pgf

Pi$$ off steve. If you havent got the intellect to come up with a counter argument dont bother.

People want to hear justification why these are not green shoots of recovery but a bull trap plain and simple.

You have previously called these loans prime lending. Prime lending with a self-cert rate of 83%?

A product that 80% are making continuous mimimum payments, despite the economic carnage they are about to reap upon themselves.

Do yourself a favour. look up the definition of Full Amortization and compare payments from minimum payment to Full Amortization....

mbga9pgf

purch wrote: »

Don't try and complicate matters !!!! :rotfl:

Doesnt Matter

:rotfl::rotfl:



Yes.......by you !!!!

What is it you are finding hard to understand? Or are you so thick as to think an average 1300-2200 dollar per month increase in mortgage payments isnt going to have a significant effect?

C0ckmunch

StevieJ

I shouldn't laugh

mbga9pgf

I take it steve then you concede the point?

Within the option ARM category, the 40 year Option ARM has witnessed a substantial increase reaching 38% of total Option ARMs in 2007 from 4% in 2004 since the longer term loans gained popularity because their lower initial payments and low-cost refinancing option. The 40-year Option ARMs not only have low teaser rates similar to 30 year ARMs but also have lower initial payments relative to the 30-year option ARMs due to the longer amortization term. This "double-teaser" feature of the 40-year option ARMs causes higher payment shock and could cause faster negative amortization than 30-year option ARMs.
In 2009 and 2010, loans with 2004 and 2005 vintages would be recast. Besides these vintages, loans with negative amortization are expected to recast early. With more than 65% of borrowers electing to make Minimum Monthly Payment (reaching a staggering 85% for 2006 and 2007 vintages), loans which recast on account of negative amortization caps are expected to increase drastically.

http://seekingalpha.com/article/113063-option-arms-the-banking-backdrop-of-2009

mbga9pgf

I will take that as yes then steve. Looking forward to losing another couple of thousand on your FTB slave boxes?